Small Cap Value Report (Fri 25 June 2021) - UPGS, VARE, ULS, FCCN, SAGA, XPD, ALT, MMH, ELTA

25th Jun '21 by Paul Scott

87 comments 10998 reads

Good morning, it's Paul here with Friday's SCVR. Plenty to cover today, including some catchup items from yesterday, when Jack kindly covered for me. I've given Jack the day off from SCVR duties today, as a thank you for yesterday.

Timing - I've got the whole day free, so we'll see how things progress. Update at 10:42 - making good progress so I should be mostly finished by 1pm. Update at 12:38 - I want to do 2 more sections (Robinson & Marshall Motors), so am extending finish time until those are done. Update at 14:21 - that's it, I've run out of puff! So - today's report is now finished.

Disclaimer -

A friendly reminder that we don’t recommend any stocks. We aim to cover notable trading updates & results of the day and offer our opinions on them as possible candidates for further research if they pique your interest. We tend to stick to companies that have news out on the day, and market caps up to about £700m. We avoid the smallest, blue sky type companies, and a few specialist sectors (e.g. resources, pharma/biotech).

A central assumption is that readers then DYOR (do your own research) and discuss in the comments below. The comments, incidentally, sometimes add just as much value as the articles. We welcome all rational views, whether bull or bear!

Agenda -

Paul's Section (all today's report is by Paul):

Up Global Sourcing Holdings (LON:UPGS) - acquisition of Salter brand. Looks a good deal, on a EV/EBITDA ratio of 7.4

Various Eateries (LON:VARE) - interim figures are largely irrelevant due to lockdowns. I check out its balance sheet, and some more general thoughts about the business & sector. Too early to judge if it's good value or not.

French Connection (LON:FCCN) - victim of a cyber-security breach. A criminal gang has "penetrated its back-end" according to TheRegister.com

Uls Technology (LON:ULS) - accounts delayed due to problems finishing the audit on time.

Saga (LON:SAGA) - a snippet of information about its imminent first cruises. Also, pricing of new bonds announced.

Xpediator (LON:XPD) - another positive trading update, with profit guidance raised.

Altitude (LON:ALT) - CFO has resigned (effective Dec 2021, supposedly). Shares down a little today. This share is on my speculative…

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Zipmanpeter

25th Jun '21

Tax deductions on pensions are gifts from the govt (ie they take/give money from taxpayers to a different group of people through a middleman). They make sense for the poorest by encouraging saving - so they need not suffer themselves nor become a drag on the public purse. Incentives on low wage salary schemes (whether DC or DB) therefore make sense.

Anything above this is an effective subsidy to people who generally do not need it (to avoid penury) and often complain other taxes are too high. I agree the debate is not clear on this as in so many areas - like student loans which are really taxes - and that a pension crisis is looming. The solution will have to be some kind of currency/monetary devaluation in the long run as the political noise will otherwise be too loud: promises will need to broken - starting with triple lock. However, I very much doubt this govt will grasp this (or any nettle) so we are likely to carry on as before for now.

Returning back to investing, in the very long run (5+ yrs) this is why I am realtively sanguine about companies pensions shortfalls as long as the breakdown date is far enough into the future and the company otherwise trades OK.

timarr

They are not forced to keep adding into their pension scheme beyond the point it stops being tax efficient as far as i am aware (please correct me if i am wrong)

Although it's odd you are wrong. As far as the NHS is concerned if you earn they contribute. Which is stupid but the impact is that the tax bills being generated wipe out the salaries being paid, so as far as the doctors are concerned they're being asked to work for nothing.

It's also insanely complicated - there are all sorts of complex rules around different types of pensions - to the point where your average doctor has no chance of working out whether they will be affected until after the event. So some are finding out too late that they're in this position and jacking it in. Others are cutting back on overtime, and the NHS runs on overtime.

Sadly even if you're correct that they're just trying to secure a better deal for themselves the fact is, as widely reported yesterday, doctors are retiring because of this. Over 30% of consultants and GPs are over 55 so retirement is an immediate option for most of them.

The LA is stupid. It's far too complicated - we now have pension advisors running DCF calculations to try and figure out what the tax bills will be based on projected investment returns. How can that be right?

timarr

Paul Scott

Well, I gave you one when I replied to your comment on Wednesday

Of course! I instantly memorise every comment.

PerpetualValue123

This comment has been moderated

carvalio

On this forum we're just investors. Not sure it's the best place to be bringing up the hoax chat. Plenty of other places online to get into that. Personally I don't want to see that sort of discussion in a place like this.

Boon

Can you quote an official source that if there is an outbreak on the cruise ship, it is forbidden to dock?

Or are you working on the assumption that authorities will take the same actions this year as they did at the start of Covid?

(I hold Saga (LON:SAGA))

JASPERTHEDOG

Paul,

While avoiding the conspiracy theory swirling around below, I wonder if the higher rate of interest demanded by the bond market for Saga (LON:SAGA) is a bell-wether for interest rates generally. If the market is nervously anticipating a sharp rise in inflation , might it also be anticipating a rise in rates to dampen demand?

Barry5

Martin, I'm with you on that and already follow you on Twitter

Carvalio, I'm just an investor too.
Don't forget that this has huge implications on economy, potential lockdowns and thus your investments.
Not agreeing is fine on arguments. Not being able to discuss on arguments is not the best way forward in my opinion.
But you are in the majority. I'll make my investments on my own perspective.
I've always learned that thinking independently and contrarian is good for investing.

I find it very remarkable that this Small Cap Value Report is about vaccination and re-opening of the cruise trade, but I can not bring these topic up with proper discussion. Because 'we're just investors'. Are you telling me that this has no impact on the SAGA investment for example? You can proof me wrong on arguments.

Time will tell.

Best of luck and best of health to all.

not sure if you have seen the latest report, but in the age group >50 with over 90% vaccination uptake: 88% of the Delta variant was found in the vaccinated group.

https://t.co/P9LNO0gHZ9?amp=1

regarding re-opening cruise trade (purely investing wise, before people report me again):

Latest UK report: https://t.co/P9LNO0gHZ9?amp=1
In the age group >50 with over 90% vaccination uptake by today.
88% of the Delta variant was found in the vaccinated group.
How does that impact the re-opening cruise trade?

Kevin Holloway

Team17 (LON:TM17) (I hold) market cap is above the limit for these posts but thought any other holders might be interested in this news of the ceo getting an award https://www.mcvuk.com/developm...

gus 1065

26th Jun '21

A couple of late Friday RNS releases about a possible tie up in the U.K. defence sector between Cobham (LON:COB) (bought out by Apax private equity last year) and Ultra Electronics Holdings (LON:ULE) (still listed). Could be some form of merger or possibly an offer by Cobham/Apax for Ultra Electronics Holdings (LON:ULE) . Both parties acknowledge there have been discussions. Ultra Electronics Holdings (LON:ULE) are being a bit coy about how far they have gone/will go. Methinks/hopes the lady doth protest too much. I hold Ultra Electronics Holdings (LON:ULE) .

https://www.investegate.co.uk/...

Gus.

rmillaree

In the age group >50 with over 90% vaccination uptake by today.
88% of the Delta variant was found in the vaccinated group.
How does that impact the re-opening cruise trade?

Must admit i sold out of Easyjet (LON:EZJ) a while back when i though the post covid bounce had probably got slightly carried away based on the present huge uncertainty about anything- i still have some Carnival (LON:CCL) shares (bought before feb last year) that i am down 50% on - i hold those but thats through stubbron stupidity and not any sensible investing logic as the debt/losses makes it a bit of a basket case investment at present.

I can see the logic of saying though for saga it's not so much of an issue with their other income streams.

If we take the viewpoint serious hospitalisations and the like will be down 75%+ for those double vaccinated over 50's and they + other they travel with should also be materially less likely to be super spreaders and those that are on board can be tested and monitored - i think on the balance of probabilities a measured return to cruises will probably work out ok even if its ultimately us accepting the "risk" and getting on with it due to covid fatigue.

From an investment point of view for those that want to protect their capital - being on the outside watching in with regard to "all overseas travel operators" is still a bit of a no brainer with the opportunities to invest elsewhere. That doesn't mean they are a bad investment though does it and we will have to wait for the flopping mops in that regard?

Brookeda

Thanks for sharing

Logical David

I have to agree with Paul's comments. My opinion is that the best place to invest your money during periods of inflation is to invest in high quality companies which are undervalued, which make a profit, have a moat which allows them to pass on price increases, have a good balance sheet and pay a dividend.

To quote the acronym.... TINA ......There Is No Alternative.

According to Stockopedia, the average Dividend Yield is 2.7%. I don't know of any savings account paying that amount of interest. The best instant access savings accounts I can find are paying around 0.5%.

David.

mojomogoz

Sustained above recent average inflation for sustained period is definitely coming. But recent market action (until start of June) and general narrative is that inflation is straight line take off mode…

…but first we will have rapid deep deflationary impulse like we’ve never experienced. Not even during the fast moving boom bust 1800s markets.

Sustained high inflation is not possible from here. It’s a misreading of data and history. Of course, we can continue to have short run disruption driven inflation.

Word

27th Jun '21

I have no problem with your investment strategy or talking about the vaccine's effect on the economy. I hold Saga, the vaccine is crucial for that and all other tourism shares (plus the wider economy).

My problem is you using phrases like:

'Most of you believe everything that the Government and the media tells you. Even after 1,5 year of contradictions and lies.

How about that the PCR test is not reliable at all?

Wake up people.... Damn...'

That goes beyond talking about the effect the vaccine has on investments.

Dinocras

28th Jun '21

It's up to the individual port authorities whether they allow the ship to dock. Our last port of call was Gibraltar and they refused to allow our ship entrance to the port, we just sat at anchor for a day.

I have no idea what individual countries will decide to do but I can't see too many allowing a ship with a C19 outbreak to allow passengers on shore. And I am certain that there would be quite severe restrictions on board too. For our norovirus outbreak (an unpleasant but non-fatal disease, most of the bars were closed as was the library and the theatre. Obviously anyone with symptoms was confined to their cabin.

All I'm saying is that an outbreak on board any cruise ship is likely to create a lot of negative publicity. I'll leave it to you to decide how likely it is that there will be such an outbreak and what its impact on demand would be.

I'm not suggesting SAGA is a bad investment, certainly not for the long-term, I'm just highlighting a potential short-term risk based on my personal experience.

29th Jun '21

I understand your perspective. Will hold back on the strong statements.
It can be frustating sometimes when people refuse to look into the details or techniques, but then make statements like 'tested positive', without knowing how this PCR test works. This frustration took the overhand.

The PCR test, like the vaccine, also has a huge influence on the economy, lockdowns and the re-opening trade.

But, note taken.

Small Cap Value Report (Fri 25 June 2021) - UPGS, VARE, ULS, FCCN, SAGA, XPD, ALT, MMH, ELTA

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Paul Scott

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